JBS, From a Small Butcher Shop in Brazil to a Global Meat Processor

At the tender age of 18, when other teenagers dream about getting a car, Wesley Batista was handed a meat-packing plant to manage.

Source: Muriel Elizabeth Hayes, Argentina | Feb 24, 2009

At the tender age of 18, when other teenagers dream about getting a car, Wesley Batista was handed a meatpacking plant to manage. Some 20 years later, the 38-year-old Brazilian runs the U.S. operations of the world's largest beef producer, Brazil's JBS beef group.

Like his brother, Joesley, the chief executive officer of JBS, the meat business was in Wesley's blood. Both dropped out of college and learned their trade early, following in the footsteps of their father, Jose Batista Sobrinho, who grew the empire from a butcher shop.

The family-controlled company, based in Brazil's financial capital Sao Paulo, surprised analysts last year by announcing plans for some major international acquisitions.

The deals included National Beef Packing Co. LLC and the beef unit of Smithfield Foods Inc. and the Australian-based Tasman Group.

JBS announced last week it was abandoning plans to buy National Beef, the fourth largest U.S. beef producer, after the Justice Department said some of its plants would have to be sold. That acquisition would have made JBS the number one U.S. beef processor, a jump from its current rank at number three.

The company, largely unknown outside of Brazil until a few years ago, originated in the early 1950s when the elder Batista started buying cows in Goias state in central Brazil and selling them to meatpackers.

In 1957, he saw an opportunity with the planned construction of Brazil's new capital of Brasilia and set up one of the first regional slaughterhouses, with an initial capacity of just 25 to 30 animals a day.

Starting in the 1980s, JBS aggressively acquired rivals and set up a national chain of plants that reduced sanitary risks and cut reliance on local suppliers, said Jose Vicente Ferraz, technical director at AgraFNP consultants in Sao Paulo.

FAST INTERNATIONAL EXPANSION

"They were very successful growing and becoming the largest in Brazil, they had the experience of acquiring companies, primarily ones that were not operating that well and then turning them around and integrating them," said Pedro Herrera, senior vice-president for global research at HSBC in New York.

Its first international move came in 2005, when JBS purchased Swift Argentina.

In March 2007, JBS went public on the Sao Paulo Stock Exchange. Only four months later it bought 100 percent of Swift Foods Company in the United States, becoming the world's largest meatpacking company in terms of slaughter capacity.

It then bought 50 percent of Inalca, a large European beef processor with plants in Italy, Russia and Africa.

"They obviously take a long-term perspective; this is a very difficult industry, and they have very much a global view of how they are going to operate," said Jim Robb, economist at the Livestock Marketing Information Center.

The Batista family retains a 50.1 percent share. Net sales in 2008 doubled from the previous year to 30 billion reais ($12.5 billion). The company has more than 60,000 employees in nearly 20 countries.

And it plans to get even bigger.

"JBS believes there are buying opportunities on further processing of meat, more consumer-ready products. There's a growth opportunity not only in the U.S. but also Australia and South America," said company spokesman Chandler Keys.

"One thing about this National deal not going through is that it gives a tremendous amount of liquidity to look at value-added opportunities to distribution system opportunities," he said.

Analysts say the company must first integrate all its recent acquisitions while dealing with the international credit crisis, which may make it difficult to raise capital.

"The company has additional leverage on the balance sheet because of the acquisitions, and somehow, they will have to reduce that as they go along in 2009," Herrera said.

But the crisis may drive some smaller meat processors out of business, reducing competition and producing new takeover opportunities.

"I won't be surprised if, sometime in 2009, these guys would buy some more assets here and there, probably within Latin America," Herrera said.